Canada shows it can be done

Janet Neilson

Canada has been the laughing stock of economic freedom. A Wall Street Journal article in the mid-1990s called the country an “honorary member of the Third World” because of its out-of-control debt and government spending. But today, the same country leads the G8 in economic performance, and while the 2008 global financial crisis took its toll on fiscal management, Canada has not been plagued by the same seemingly insurmountable problems that the United States and some EU member states face.

By the early 1990s, Canada's public debt was almost 70% of GDP, and the uncontrollable interest costs of servicing it accounted for nearly a third of federal revenue and over a quarter of federal spending. Canada's pension system was unsustainable due to an aging population. During the Thatcher and Reagan years, Progressive Conservative governments did not do enough to rein in spending, and parliament nearly fell when the centre-left Liberal Party, led by Jean Chrétien, came to power in 1993.

What changed? The prevailing ideas. As the crisis unfolded and the ratings agencies began to re-rate Canada, the efforts of think tanks and business leaders who had been pushing for tighter fiscal management by the Canadian government began to pay off. Public opinion shifted and political battles intensified. Chrétien may have been a social democrat, but no party that wanted to stay in power at the time could do so without reform.

Between 1993 and 2003, Canada's government spending fell every year. The most dramatic changes were enacted in Finance Minister Paul Martin's 1995 budget, which cut spending on federal programs by 9.7% (much more than the planned 8.8% cut), reduced the number of federal bureaucrats by 14%, and reduced the size of individual departments by 40% over two years. This was not a reduction in planned spending growth, but an actual reduction in the size of government.

All programs, without exception, undergo a “Program Review” to determine whether the federal government should undertake each program and whether it can do so with the necessary efficiency and effectiveness. Ministers are asked to rate their departments on the following criteria: (1) serving the public interest; (2) need for government intervention; (3) appropriate federal involvement; (4) opportunities for private sector partnerships; (5) potential for efficiency gains; (6) cost-effectiveness.

In addition to these reforms, control over some programs was decentralized by allocating them to the provinces. The federal pension system became funded.

The economy is growing, and government contraction frees up room for growth, which leads to increased revenue, allowing for tax cuts and helping to fuel future economic growth. Brian Lee Crowley of the McDonald-Lowry Institute calls this a “virtuous circle.”

Canada is also much more welcoming to the world than its southern neighbor. It takes in more skilled immigrants each year than the United States, despite its small population, and it does so without tying them to specific jobs. Neither major party opposes immigration.

Canada's banking system has been rated the most stable for six years. That's not because regulations are stricter there, but because banks are allowed to act as they see fit. As during the Great Depression, Canada experienced no bank failures during the recent economic crisis.

The challenges continue. Under Prime Minister Stephen Harper’s Conservative government, the size of the federal public sector has grown dramatically, international investment decisions have been blocked, and politically important restrictions on agricultural trade have continued to be maintained. Despite polls showing continued public opposition to government deficits, the government passed the “Canada Economic Action Plan” stimulus package that plunged the country into a series of deficits that continue to this day. And the provinces have their own, additional problems.

Despite the Conservatives' best efforts to silence small-government advocates and quell accusations of reckless spending, Canadians are reluctant to accept deficits without a plan to balance the budget. Slowly and gradually, though comparable to the reforms implemented by Chrétien's Liberals, there has been a steady move toward a balanced budget. Canada continues to perform well economically, with some of the lowest social spending as a percentage of GDP among developed countries and a stable banking system, despite government growth as a percentage of GDP comparable to that of the 1920s.

The battle for moderate government is not between politicians, but between ideas. Canada's past victories provide lessons for all countries for the future.

Translation: Silvia Yanakieva

Proofreader: Daniel Vassilev

The article is from Atlasone.com

You can read the original text here.

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